Minnesota Life Insurance License Practice Exam

Which of the following is NOT a characteristic of term life insurance?

1. Provides coverage for a specified period

2. Can offer a cash value component

3. Generally has lower premiums than whole life

4. Expires at the end of the term if not renewed

The correct answer is: Can offer a cash value component

The reason that term life insurance is identified as not having a cash value component is that it is designed primarily for providing pure life insurance protection for a specified duration. Unlike whole life insurance, which builds cash value over time as part of its savings or investment component, term life insurance does not accumulate any cash value. The premiums paid for term policies are solely directed toward providing coverage for the agreed term, without contributing to an investment vehicle. Given the characteristics of term life insurance, it typically offers lower premiums compared to whole life insurance, which is reflected in the nature of its coverage. Furthermore, the policy will expire at the end of the term unless renewed or converted to a permanent policy, aligning with the short-term nature of term coverage. Therefore, the lack of a cash value component is a definitive characteristic that distinguishes term life insurance from other life insurance products.